84 couNtRy PAGes AND Key INDIcAtoRs - World Bank

84 Country Pages and Key Indicators

Vietnam Congress and a new administration on the economy
may manifest itself differently than in countries with
Population 86.2 million multiparty systems. Efforts to give a new impetus to
structural reforms appear to be under consideration.
Population growth 1.2 percent Two important documents prepared for the Party
Congress—the Socio-Economic Development Strategy
Surface area 329,310 sq.km. for 2011–20 and the Socio-Economic Development Plan
for 2011–15—have an overriding theme of restructuring
Capital Hanoi the economy toward “quality-based, sustainable
growth.” They emphasize achieving rapid growth
Source: World Development Indicators. through higher efficiency in investment (as opposed to
higher capital accumulation), greater value-added and
Vietnam’s recovery from the global economic crisis has an environmentally sustainable growth path.
been rapid but uneven. The growth rates of key economic
indicators, including real GDP, industrial production, The last three years have witnessed sudden changes
investment, and exports, are expected to recover to in the global economic environment, forcing the
near their pre-crisis trend growth rates. But the current authorities in Vietnam to recalibrate their policy
account deficit remains high and households and firms response. Vietnam’s economy started to overheat as
appear to continue to stockpile foreign currency and a result of large capital inflows in the aftermath of the
gold, putting persistent pressure on the local currency. country’s accession to the World Trade Organization.
There are concerns that the rapid expansion of domestic By the time the government took steps to stabilize
credit to stimulate the economy led to weakening of the economy, the global economic crisis was on its
the balance sheet of some of the banks. The stock borders. The government, therefore, had to switch
market, after staging a smart recovery in 2009, has gears in late 2008 to revive economic activity by
slumped again and continues to underperform the adopting a large fiscal and monetary stimulus package.
broader economy. Vietnam’s sovereign bond spreads The stimulus, together with the relative resiliency of the
remain high at around 400 basis points and are higher country’s financial section and exports, helped limit the
than most regional comparators. So while the real slowdown of activity in 2009. With the recovery under
economy has managed to restore the pre-crisis growth way in 2010, the government switched gears again. It is
momentum, investors remain concerned about the now trying to phase out the stimulus package without
country’s ability to manage a “soft landing.” disrupting the economy while striving to preserve good
economic performance during the period leading up to
More than the economy, the dominant discourse will the Party Congress.
be affected by the approaching election year. The
Eleventh Party Congress is scheduled for January The real economy has bounced back quite rapidly.
2011, and a new administration will take office in early Real GDP is estimated to have grown by 5.3 percent
2011. With its one party system, the impact of a new in 2009 and is on track to achieve the 2010 target of
6.5 percent. Industrial production is expected to grow
12.5 percent in 2010 after its growth slumped to
7.6 percent in 2009. Exports have also recovered back
to the 20 percent annual growth rate observed before
the crisis. Growth of fixed capital formation and private
consumption continue to be the dominant sources of

world bank East asia and pacific economic update 2010, vol. 2

85Country Pages and Key Indicators

overall growth, with their cumulative contribution to 2008, the EGs invested heavily in the financial sector
real GDP growth increasing from 5.7 percentage points and real estate, exacerbating the asset price bubbles.
in 2009 to 6.9 percentage points in 2010. The revival of In late 2009 and early 2010, some of them speculated
investment has been associated with the recovery of against the Vietnamese Dong. Recently, it was revealed
foreign direct investment, which rose from $6.9 billion that Vinashin (an EG involved in shipbuilding) has used
in 2009 to $7.6 billion in 2010 (see Appendix). Anecdotal resources obtained through government guarantees
evidence indicates that the ongoing relocation by to invest in its non-core activities, falsified financial
manufacturing firms from higher wage countries in reports, and is on the verge of default.
East Asia is beginning to benefit Vietnam, which with
its relatively low wages and easy access to coast is Finding a way to balance the economic contribution of
well positioned to absorb such investments. EGs and improve their accountability and transparency
remains a key imperative for the new Party Congress.
A calibrated phasing out of the stimulus package is While important policy decisions on EGs are unlikely
under way. The part of the stimulus package directly before the new Party Congress, vigorous debates
financed through the budget has been withdrawn, are taking place within the party and the government
with the overall fiscal deficit expected to decline from on how to balance the benefits of EGs with their
8.9 percent of GDP in 2009 to 5.9 percent in 2010. shortcomings. The new development strategy is
Stronger revenues could help cut the deficit to as little unlikely to remain silent on this issue. Strengthening
as 5.5 percent. Some of the monetary stimulus has institutions and making them more accountable and
also been withdrawn, although attempts to raise the transparent is emerging as a key theme. Improved
minimum capital for the banks continue to face strong governance of the EGs, along with a new law on public
opposition from the banking sector. In the first eight investment and a new framework for public-private
months of 2010, credit is estimated to have risen by partnership—if they are approved by the government
16 percent compared to 27 percent growth during the and supported by the new Party Congress—will boost
same period last year. It appears that credit growth for structural reforms in Vietnam and set the foundation for
2010 as a whole will be slower than the 25 percent a strong and sustainable growth.
targeted by the central bank.

Vietnam’s state-owned enterprises (SOEs) have played
an important role in the country’s progress, but have
also become a source of long-term vulnerabilities.
Despite the government’s ambition to complete
the transition to a market economy with a socialist
orientation and to develop the private sector, Vietnam’s
economy is still dominated by SOEs. In 2007, Vietnam
adopted a strategy to exploit “economies of scale in
production and technology” by transforming large
SOEs to “Economic Groups (EGs)” and gave them first
mover advantage in sectors with increasing returns to
scale. While some of the EGs have served the cause of
their existence (e.g., VNPT, EVN, Petro Vietnam, etc.),
many have also contributed to magnifying the economic
instability. During the overheating in late 2007 and early

robust recovery, rising risks

86 Country Pages and Key Indicators

Vietnam: Key Indicators 2006 2007 2008 2009 2010f 2011f
Year Year Year Year Year Year
Output, Employment, and Prices
Real GDP (% change y-y) 8.2 8.5 6.2 5.3 6.5 7.0
Industrial production index
16.8 16.7 13.9 7.6 12.5 14.5
(% change y-y) 4.8 4.6 4.7 4.6 4.0 4.0
Unemployment (%) 1/ 6.7 12.6 6.5 8.0 7.0
Consumer price index (% change y-y) 19.9
Public Sector
Government balance, official (% GDP) 2/ 1.1 -0.7 1.3 -5.1 -1.7 -0.7
Government balance, general (% GDP) 3/
Public sector debt (% GDP) 4/ -0.4 -1.9 -0.9 -8.9 -5.9 -4.5
Foreign Trade, BOP, and External Debt
Trade balance (billions US$) 42.9 45.6 43.9 49.0 51.3 50.6
Exports of goods (billions US$)
-2.8 -10.4 -12.8 -8.3 -10.8 -11.4
(% change y-y) 39.8 48.6 62.7 57.1 68.0 81.0
Key export (% change y-y) 4/ 22.7 21.9 29.1 -8.9 19.2
Imports of goods (billions US$) 12.1 23.1 -40.2 -11.2 19
42.6 2.7 75.5 65.4 78.9 4.7
(% change y-y) 22.1 58.9 28.1 -13.3 20.6 92.3
Current account balance (billions US$) -0.2 38.3 -10.8 -7.4 -9.3 17
-0.3 -7.0 -11.9 -8.0 -9.0 -9.3
(% GDP) -9.8 6.9 -8.0
Foreign direct investment (billions US$) 2.3 9.3 36.6 7.6 7.9
External debt (billions US$) 19.1 6.6 29.4 39.2 41.7 47.7
31.4 23.2 32.5 12.7 40.3 41.3
(% GDP) 6.8 32.6 16.4 15.2 12.5 12.8
Debt service ratio (% exports of g&s) 11.5 23.0 10.9 17.5
Foreign exchange reserves, gross (billions US$) 12.5 6.2 14.4 11.4
21.0
(months of imports of g&s) 16.6
Financial Markets
Domestic credit (% change y-y) 25.4 53.9 25.4 37.7 25.0 25.0
Short-term interest rate (% p.a.) 6/ 7.9 7.8 8.1 10.7 11.0 ..
Exchange rate (Dong/US$, eop) ..
Real effective exchange rate (2000=100) 16,068 16,003 17,486 18,479 .. ..
96.8 100.2 119.1 106.8 .. ..
(% change y-y) -2.7 3.5 18.9 -10.3 .. ..
Stock market index (Jul. 2000=100) 7/ 752 927 316 494.8 ..

Memo: Nominal GDP (billions US$) 60.9 71.1 90.3 93.2 103.6 115.4

Sources: Vietnam Government Statistics Office, State Bank of Vietnam, IMF, and World Bank staff estimates.

e = estimate
f = forecast
.. = not available
BOP = balance of payments
1/ Urban areas.
2/ Excludes off-budgetary items.
3/ Includes off-budgetary items.
4/ Public and publicly guaranteed debt.
5/ Crude oil.
6/ Three-month deposit, end-of-period.
7/ Ho Chi Minh Stock Index.

world bank East asia and pacific economic update 2010, vol. 2